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Everything You Need to Know About Endowment Policy Research Team | Posted On Monday, December 03,2018, 04:32 PM

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Everything You Need to Know About Endowment Policy



What is an Endowment Plan?

Endowment plan is a life insurance policy that provides insurance as well as savings. An individual buying an endowment plan has the benefit of saving money over a specific period of time. The policy holder gets a lump sum on the maturity of the endowment plan. The policy includes life assurance, so it will also pay sum assured + accrued bonus, if the policy holder dies during the term of the policy.

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Everything You Need to Know About Endowment Policy

What are the Types of Endowment Plans?

There are various types of endowment plans. Listed below are the ones that you can choose from:

  • Unit Linked Endowment Plan: Under Unit Linked Endowment Plan, premiums paid are divided into multiple units which are held under a specific investment fund chosen by the policyholders.
  • Full /With Profit Endowment: A full endowment is a with-profits endowment, where the basic sum assured is equal to the death benefit at start of policy and assuming growth, the final payout would be much higher than the sum assured.
  • Non-profit Endowment: These are endowment plans which do not participate in the profits generated by the company (bonuses). However, in order to make them competitive against other products, companies offer guaranteed additions in these plans which help in generating returns for the policy holder.

Features of Endowment plan:

  • Higher returns: An endowment policy helps an individual build a corpus over a period of time. This results in higher payout on maturity than a term plan.
  • Low risk: the endowment policy is a safe investment option as the money here is not directly invested in equity or mutual funds.
  • Flexibility in cover: Riders like critical illness, total permanent disability, and accidental death can be added to the base plan to enhance the life cover. 
  • Frequency of premium payment: Payment of the premium can be done on monthly, quarterly, half yearly or yearly basis.
  • Tax benefits: the policy holder can avail a tax benefit under Section 80C and Section 10 of the Income tax act 1961.

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Riders available under Endowment Plan:

A rider is a provision of an insurance policy that adds to the coverage or terms. Most riders add coverage for an additional amount. These are some optional riders that can be availed along with an endowment plan by paying an additional amount:

  • Accidental death cover: the insurer will pay accidental death cover as well as death benefit to the policy holder.
  • Critical illness cover: in case the policy holder is diagnosed with critical illness then he is entitled to get a lump sum amount under this rider. 
  • Hospital cash benefit: In case the policy holder gets hospitalized, then he gets a daily allowance as well as post hospitalization benefits.
  • Disability: this rider is beneficial when the policy holder suffers from partial or permanent disability.

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What are the documents required to apply for an endowment policy?

The documents required to apply for an endowment policy are listed below:

  • Duly filled application form
  • Age proof
  • Address proof
  • Residential proof
  • Passport size photograph

How does an endowment plan work?

Endowment policies are similar to the regular life insurance policies and are an investment product that can be bought from a life insurance company. The benefit of the endowment policy is not only it provides an insurance cover, but also helps the policy holder build a corpus over a period of time. The sum assured along with the bonus is paid to the policy holder on maturity. Typical maturity periods are ten, fifteen or twenty years up to a certain age limit. In case of death of the policy holder before the maturity period, the insurer needs to pay the amount as it also provides life insurance.

Who should buy an Endowment Policy?

Endowment policy is a risk free investment option. It should be bought by individuals who wish to ensure life cover for their family as well as build a corpus to fulfill long term investment objectives. People who have a steady flow of income can buy regular premium plans that would allow the policy holder pay premiums regularly.  People who want to invest money to get long term benefits can avail an endowment policy.

How to Choose an Endowment Policy?

There are various endowment policies available in the market. You must choose the policy based on needs. There are various factors that must be kept in mind before choosing an endowment plan:

  • Income
  • Current stage of life
  • Individual needs
  • Cost of the premium
  • Claim settlement ratio of the company
  • Customer service provided by the insurer

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  Things You Need to Know Before Availing an Endowment Plan:

  • Begin early: As these plans are long-term in nature, the longer the policy period, the better the overall benefits. 
  • Select a plan that offers riders: there are some insurers who offer riders as part of the endowment plan.
  • Bonuses: Bonus is decided by the insurance company. The bonus depends on the performance of the insurance company. The bonus is the profit made by the company from its investments, a part of which is divided among the policyholders at the end of the financial year.
  • Payment flexibility option: A salaried individual can opt for a regular endowment policy whereas individuals with irregular income can opt for a single payment option.

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